Lessons from Netflix’s Summer of Discontent

It hasn’t been a blockbuster summer for Netflix. First, they raised prices, and now they are causing great ire by deciding to split their DVD business from their streaming business. Netflix’s moves have caused more than a million defections, tremendous scorn in social media channels and a slumping stock price. It has become increasingly clear that they have damaged their brand. Ironically, the DVD split was part of a widely criticized video by CEO Reed Hastings that contained a sort of half-apology for the price increase. What can a professional services firm learn from Netflix’s miscues? Plenty.

Lesson 1: Showing value helps justify pricing.

From an outside perspective, it seemed odd that Netflix chose to raise prices so dramatically rather than incrementally. Pricing sensitivity is the number one issue for both for businesses and consumers. Announcements of increased content strategically issued around several staggered price increases would have shown consumers tangible value for their extra dollars. (Instead, aside from two very minor content deals, customers saw a major pending content decrease with the non-renewal of Starz.) The constant demand for value compels companies to increase transparency and show exactly where dollars are going.

Lesson 2: Do your research.

Qwiskster, the name of the new Netflix DVD service, is the handle (@Qwikster) of a Twitter account attached to a person who talks a great deal about unsavory subjects and who, at the time of the announcement, had an avatar featuring a marijuana-smoking Elmo. When rebranding, or launching a sub-brand you should always make sure to register, even if you do not initially use them, all social media channels that one could reasonably associate with you. It also is not a bad idea to anticipate blowback and register domain names and accounts that might be used as derogatory forums. (Southwest Airlines bought the domain Southwestsucks.com for this very reason.)

The other issue is that the name, Qwikster, besides being rather vague, is already associated with several other companies and brands.

Lesson 3: Your brand is golden.

The marketplace is crowded and establishing relationships with consumers and, for professional service companies, decision makers, is paramount. You differentiate yourself through superior results, service and by establishing your company as a trusted partner and knowledge base. Previously, the Netflix brand was consistently one that consumers embraced as evidenced by steady growth in subscriber numbers. Even now, it is still a powerful brand. By creating an entirely new brand with Qwikster, they are starting at ground zero.

At times, it may seem tempting to create brands within a brand. However, unless your brand is negatively perceived in a market segment – think Coors whose corporate macrobrewer status didn’t mesh with production and marketing of microbrew-esque Blue Moon – why would you sacrifice brand equity for novelty? Did anyone suggest, “Netflix by Mail” or “Netflix DVDs?” Sexy? No, but it ties to my next point.

Lesson 4: Understand what you are providing.

A great point recently made was that professional service companies generally create their websites based around their internal structure. Practice groups and areas dominate. What professional services firms really do, and how they should organize their website, is providing solutions. What questions are clients seeking answers to? How can I anticipate their needs and illustrate a possible answer?

This logic also applies to Netflix. Customers aren’t thinking about streaming versus DVD. They are looking for entertainment. By creating two companies with different websites and no unified queue, Netflix is, in essence, balkanizing itself and providing a needless step in providing a solution to a customer’s need. Netflix should center all decisions around this philosophy: We provide an entire range of entertainment to customers. Easy and effective.

A Final Thought

Public relations, branding and effectively crafting and relaying a company’s core message is a difficult task that needs to be handled carefully. Marketing and communications teams are strategic partners in this process. If handled properly, companies can rebrand and reposition themselves with great success (think IBM). If handled poorly, the consequences can be fatal (think Borders).